St. Mark’s Medical Center: The Mortgage
This column is a recurring column sharing public information and insight on St Mark’s Medical Center, the needs for health care in Fayette County, and a path forward.
One reason given for the financial struggles at St. Mark’s Medical Center (SMMC) is the high monthly mortgage debt service. This article attempts to delineate the multitude of transactions that are involved in fully understanding the situation, in the hopes that it provides clarity for community discussion and a path forward.
Research entailed review of over 30 different documents filed in our Fayette County Clerk’s office pertaining to the corporate and land transactions. Let’s start with the current long-term mortgage liability. According to the latest audited financial statement issued September 2021, the land, buildings and equipment has a depreciated value of roughly $18.1 million and the long-term debt is $13.2 million. This differs from the IRS 990 where it states the secured mortgage and notes payables to unrelated third parties is $14,834,387. As of January 2020, the actual principal due according to the lender was $13,155,273.
The initial mortgage loan for construction of the hospital was issued by Wells Fargo Bank, NA, in March of 2005. This loan was to bear interest at a rate of 5.63% per annum until August of 2005, presumably the forecasted date of completion of the hospital, and then the loan would bear interest at a rate of 4.53% for a period of 25 years ending in September of 2030. The mortgage falls under the US Department of Housing and Urban Development (HUD), where the Office of Hospital Facilities (OHF) administers the Federal Housing Administration Section 242 Mortgage Insurance for Hospitals program. The program is part of the National Housing Act and backstops the lender against a hospital mortgage default. This lender backstop results in a AAA credit rating, which results in a lower interest rate, a lower payment, and in theory more hospital funds to address community health need. Wells Fargo assigned the mortgage to Lancaster Pollard Mortgage Company in June of 2013. This transfer of the mortgage brought forward all the covenants and restrictions that were part of the original mortgage, including 19.960 acres of land carved out to secure the note. Lancaster Pollard has since been acquired by Orix Real Estate Capital, LLC, presumably the current mortgage holder.
Based on these parameters, the mortgage payment through the end of 2019 would have been approximately $136,600 monthly, excluding mortgage insurance. However, according to recorded documents, in 2020 the mortgage was amended with Orix Real Estate Capital to a three-year interest only loan from January of 2020, through January 2023. The interest only rate was 3.03% and will continue for the balance of the mortgage until the unpaid balance is paid. A pretty good rate in today’s banking climate. The interest only payments for the period were estimated at $35,958 per month, and starting January of 2023 increased to $160,423 per month for approximately 10 years.
In the next part we’ll look at some of the hospital land and professional building details.